Meanwhile the euro has pared gains against the dollar and the yen after an Italian election projections showed former prime minister Silvio Berlusconi's conservative bloc leading in the Senate, raising the spectre of deadlock in the country's parliament.

The credit downgrade compounds pressure on the pound that emerged last week after minutes of a BoE policy meeting showed officials, including Governor Mervyn King, edged closer to another round of the bond-buying programme that pumps more money into the economy - a policy known as quantitative easing.

The bank's quarterly report earlier this month also said policymakers were prepared to tolerate higher inflation to support growth.

"(The rating cut) reinforces the perilous economic position the UK is in," said Kathleen Brooks, research director at Forex.com.

"This downgrade may fuel more speculation that QE will be re-started later this year. This is pound-negative for the medium term and we could see sub-$1.50 in the near term."

Such monetary easing is seen as hurting a currency as it involves the central bank printing more money to buy bonds. That increases the supply of the currency and erodes its value.

Analysts said that by tolerating higher inflation in the coming years, real or inflation-adjusted returns for investors would diminish, making the pound and UK assets less attractive.

Data from the Commodity Futures Trading Commission showed more speculators building bets against the pound in the week ended 19 February, after they flipped from bets in favour of the currency a week earlier.

Bets against the pound may have some way to go, with net short positions just a fraction of the nearly 80,000 contracts in place when sterling fell to below $1.45 in May 2010.